The structure of employee compensation in Saudi Arabia : the case of chemical and petrochemical industries

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Author

Mahdi, Salah Eldin Taha

Attention

2299/14235

Abstract

This study examines the wage differentials and wage discrimination
among employees in the chemical and petrochemical industries in Saudi Arabia.
The context of segmentation is discussed through a detailed examination of the
distinct features of the Saudi labour market, with a special emphasis on the
Saudisation labour policy that reflects government intervention in the labour
market. Under the Saudisation labour policy, the government compelled private
firms to attract Saudi nationals to join their services and to secure them permanent
jobs. The present study discusses how this policy has distorted the structure and
function of the Saudi labour market from both the demand and supply side
perspectives.
Due to the lack of official data on the Saudi labour market and the
restrictions by the Statistics Law in Saudi Arabia on access to any cross-sectional
data, a purpose designed cross-sectional survey was conducted among a sample of
six hundred Saudi and non-Saudi workers in these industries. Simple statistical
analyses of the survey returns have revealed substantial differences in the pay and
working conditions between Saudi and non-Saudi workers across a number of
personal characteristics, such as levels of education, occupation, years of working
experience and marital status. Regression analyses have further confirmed the
significant differences in the effects of supply side factors on the monthly
earnings on Saudi and non-Saudi workers.
Using the Oaxaca-Blinder technique to measure and to decompose
differences in average monthly earnings between Saudis and non-Saudis in the
chemical and petrochemical industries, the study reveals that the aggregate
earnings differentials between the two groups of workers is 62.6% in favour of
Saudi workers, while the explained portion of the earnings differential between
the two groups of workers is estimated at 3%, and the unexplained portion is
calculated at 97%, which indicates a significant level of discrimination in the
chemical and petrochemical industries.
This study provides an original and systematic attempt at examining wage
differentials and wage discrimination with emphasis on the sources of
segmentation in the Saudi Arabian labour market between indigenous and migrant
workers. It contributes to bridging the gap in the studies on wage differentials and
the labour market's segmentation in Saudi Arabia with a hope that the economic
reforms that have started in the country will consider such issues to reform its
labour market policy.